Hiroyuki Kachi

NEW YORK (MarketWatch) — The U.S. dollar slumped versus major rivals Tuesday, as worries about Greece’s debt woes eased.

The Australian dollar temporarily slumped to a five-and-a-half year low after an interest-rate cut, but regained ground as risk appetite revived. While interbank markets had priced in a 60% chance of a cut, the move appeared to catch some investors a little off-guard.

The ICE dollar index
DXY, +0.52%
a measure of the U.S. unit against a basket of six major rivals, fell 0.9% to 93.685.

The euro
EURUSD, -0.7836%
rose to $1.1468, up from $1.1341 on Monday, on signs the standoff between the new Greek government and its creditors could soon come to an end.

In an interview with the Financial Times, Greek Finance Minister Yanis Varoufakis backed away from requesting a debt writedown and instead proposed a debt-swap plan, where repayments are linked to future growth. Earlier in their negotiations, Greece’s eurozone partners had ruled out a haircut on Greek debt, stressing that the country must stick to its agreements.

The finance minister and Prime Minister Alexis Tsipras are in the middle of a tour to meet European officials in an effort convince them to relax the strict bailout terms. Varoufakis was in Rome on Tuesday to meet Italian government officials, and was slated to discuss the debt agreement with European Central Bank President Mario Draghi in Frankfurt on Wednesday, as well as European Commission President Jean-Claude Juncker in Brussels.

Meanwhile, the pound
GBPUSD, -0.4752%
climbed to $1.5151, up from $1.5039 on Monday.

The Aussie
AUDUSD, -0.4783%
traded at 77.66 U.S. cents, down from 78.03 cents on Monday, but rebounding off a low of 76.25 cents. Against the yen
AUDJPY, -0.31%
it traded at ¥91.29, compared with ¥91.70 late Monday.

The weakness came as the Reserve Bank of Australia lowered its benchmark interest rate to a record low of 2.25%, joining a procession of central banks that have eased policy settings since the start of the year in response to the deflationary impact of tumbling oil prices.

The RBA’s decision may cloud expectations that the Federal Reserve will go ahead with an expected interest rates increase later this year.

“With the global economy slowing down and showing signs of reaching a turning point, the Fed may have to change its stance slightly,” said Yuzo Sakai, manager at FX business promotion at Tokyo Forex & Ueda Harlow, adding that accelerated one-sided strength in the U.S. currency as a result of an eventual rate increase could raise problems.

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